professional networking: 3 key roles of accountant
DESCRIPTION
presentation to accountants about networking with other professionals, specifically slanted towards accountants working with professional risk management advisersTRANSCRIPT
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The 3 key roles of the Accountant in Business Risk Management
The Accountant is the primary expert relationship with the business owner.
The 3 key functions are:
1. Identifying the appropriate risk management strategy
2. Quantifying the problems
3.Managing implementation of the solution
Today we will quickly cover:
a.What is risk
b.How to measure it
c.Strategic choices
d.Quantifying impact
e.Managing solutions
Do all this = Good Parenting
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Risk – The possibility of an adverse outcome
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Measuring Risk & Choosing Strategy
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Avoiding Risk
refuse to accept risk for a moment. Simply do not engage in it.
Example: Currency risk in exporting exclusively to USA.
Problem: it is a negative management technique. Essence of business growth is calculated risk taking – so potentially growth-inhibiting.
Advantages: often low direct cost. Can be self-managed (appeals to DIY clients). Eliminates entire element of risk, enabling focus on other areas. A valid strategy if used on a considered basis, and selectively.
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Retaining Risk
Often a default choice through ignorance – that is, no deliberate decision has been made to either avoid, transfer or mitigate, so it becomes retained. However, it can be a viable strategy for low frequency/low severity events.
Example: over-reliance on few key staff managed by increased training and development of internal procedures manuals (“turnkey” operations)
Problem: often unconscious choice, therefore the risk not considered.Advantages: generally good way of managing risks of low severity but relatively high frequency. If a considered approach however, can lead to improved business performance (profitability & value) through application of risk minimisation tactics together with built in pricing provisions for risk adoption. Generally when a known risk is retained, it follows that mitigation techniques are applied
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Transferring Risk
Essentially it consists of passing the risk on to another party who is willing to assume it. The key principle is that the client takes a known loss (premium) that can be tolerated to remove the cost of the unknown loss that cannot be retained
Example(s). Insurance policies, currency hedging, futures contracts
Problem: to pass the risk consequences off you incur a known loss. Biggest problem is often knowing who to pass it to – seek specialists.
Advantages: loss is minimised and known, creating certainty. Bulk of uncertainty transferred, freeing up business resources for growth & development.
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Mitigating Risk
Two methods of mitigation: reducing probability of event or minimising impact/severity of event
Example(s): adoption of safety equipment and machinery guards to reduce probability of event occuring. Or, installing sprinkler system to minimise impact of fire.
Problem: betwixt & between – some retention, some avoidance, some transferrence means can be more difficult and costly to implement appropriate strategies. Tends to take some time to implement also.
Advantages: often relatively cost effective overall; can enhance business efficiency and value; can improve ongoing costs; can improve employee relations
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Quantifying the problem
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Quantifying the problems
Recap: A. Probability of occurrenceB. severity of outcome
Accountants-only functions:
Valuation methodology – what is appropriate. Or what range of methods?
Identifying vital components of value creation. Attributing value to those.
Assessing optimal strategy – Retain? Avoid? Transfer?Providing professional recommendation to clientManaging other specialists during implementation. (Project manager)
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Already too much to do?
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Managing the Solution
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Overview of risks to consider
Some general types of risks worth transferring: property; liability;personal impact (life, health, disability); negligence & omission
Some not worth transferring, but worth Reducing (mitigating impact of) or Retaining:
Business succession; Capital/cashflow strain;OSH & ACCGrowth/control issues (e.g. operational procedures, HR, leverage,
etc)
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Show the road ahead...